Smaller boutique practices merging, divesting, closing in wake of 2020
There are four basic options if your practice is struggling and a change is needed.
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“Many of life’s failures are people who did not realize how close they were to success when they gave up.”
– Thomas A. Edison
Between the noisy lines of the central story of larger practices divesting to private equity firms, which has been getting louder in the last few years, is the quieter story of small practices merging, divesting and often closing — all accelerated by the pandemic.
The calls we get go something like, “I’m 63 and in solo practice. We were doing fine until COVID-19, but now we’re barely breaking even. I can’t retire without restoring my income and topping up my retirement savings for another 3 years. What’s the best path ahead?”
As an adviser, I used to get a call like this every couple of years. Now these calls are coming monthly.
If you are a smaller-sized practice operator in approximately the same situation, you have four basic options. Here is a recap of each, along with an abbreviated step-by-step guide to the principal actions you might take.
What to do with your practice
1. Turn the practice around and restore profitability. This is generally a lot harder than keeping a successful practice in the black. Even if you know theoretically what has to be done to boost revenue and taper costs, old habits can keep a moribund practice from resuscitation.
- Muster a “turnaround task force,” including the practice owners, administrator, accountant and any appropriate advisers.
- After reviewing historic performance data, draw up a two-column list showing actions and financial impact (see Table for example).
- Draw up a month-by-month pro forma showing expected practice performance if the turnaround plan is launched and sustained.
- Nominate a leader who “owns” execution of the plan, most likely your administrator.
- Launch the plan, reconvene the task force periodically to track progress and adjust efforts as needed.
2. Divest the practice to a compatible local buyer, and then either work as an associate in the buyer’s practice or retire early.
- Make a list of possible suitors (both colleagues and larger institutions).
- Prepare and send a letter describing what you have and the transaction you seek.
- Place follow-up calls to all recipients.
- Pursue, negotiate with and attempt to close with any parties coming forward.
- If the practice sells, the buyer will be responsible for custody of all charts and the technical details of transferring e-charts.
- As the seller, you would typically keep your accounts receivable (collected by the buyer on your behalf less a 5% service charge); you would typically keep your bank accounts and be responsible for paying off all liabilities.
- Realize that as an associate you will likely be vulnerable at any time to termination, and you will have no practical control over your professional environment.
3. Merge the practice with a compatible partner, and then go from owning 100% of your solo practice to owning a fractional share of a larger merged organization.
- As with No. 2 above, select local and regional practices to reach out to.
- Pursue discussions with any interested colleagues, and move as briskly as possible to a prospective transaction (time is never a friend in these matters).
- Lean on legal, accounting and other advisers to represent your best interests.
4. Wind the practice down rather than continuing to suffer low profits or, worse, losing money from your personal savings each month. Then work either full or part time for a new practice or learn to live on lower retirement savings than you had hoped.
- If you cannot find a buyer (No. 2) or a merger partner (No. 3), you may have to simply wind the practice down.
- Unwind or otherwise discharge leases, service agreements and all other liabilities.
- Sell or donate the tangible furniture and equipment.
- Contact your attorney and state/local medical authorities for guidelines on your responsibility to inform patients and retain/distribute charts.
- Find a custodian for your charts. Even if no local practice offers to buy your practice, someone will likely be willing to take the responsibility of future patient contact and care.
What to do if you are a younger physician
Obviously, option No. 4 may end up being the default if one or more of the first three options are tried and fail.
What should you do if you are only in the middle of your career and in a flourishing practice today? Chiefly, try to avoid ending up like the senior doctor described above. How?
- Accelerate your savings and investment pace so you are financially independent many years before the earliest that you contemplate retiring from medicine.
- Stay personally engaged with business operations. You never want to be surprised by adverse practice performance, nor let it linger. If you are a small-time operator, you and your administrator need to both have a memorized command of the performance benchmarks of your practice and be ready to jump on the source of any adverse values.
- Cultivate relationships with local friendly large competitors, so that if you one day hit a tough business patch, you will be welcomed to join with the larger outfit.
- For more information:
- John B. Pinto is president of J. Pinto & Associates Inc., an ophthalmic practice management consulting firm established in 1979. He is the author of several books on ophthalmic practice management, including John Pinto’s Little Green Book of Ophthalmology: Strategies, Tips, and Pearls to Help You Grow and Manage a Practice of Distinction, UP: Taking Ophthalmic Administrators and Their Management Teams to the Next Level of Skill, Performance, and Career Satisfaction (with Corinne Wohl), Simple: The Inner Game of Ophthalmic Practice Success, and Ophthalmic Leadership: A Practical Guide for Physicians, Administrators, and Teams. Available now for purchase at healio.com/books. Receive 20% off with promo code PINTO20. He can be reached at 619-223-2233; email: pintoinc@aol.com; website: www.pintoinc.com.